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The R&D budget trap in innovation

When evaluating the innovation capacity of your company, the most common criterion is the R&D budget (Research & Development). Indeed, common thinking sees R&D spending correlated to innovation capacity and increasing turnover. But if you think this, let me tell you that you are wrong.

Focusing on your R&D budget is a good approach to analyze your best practices. But this is by no means a key indicator of your innovation capacity. Having a R&D department supported by a comfortable budget, and successfully launching innovation on the market are two completely different things.

Indeed, there are two main risks associated to any innovation project: technical risks and market risks. The technical risk is whether you will be able to design this new technology and make it work. While, the market risk is whether customers will buy and use your innovation.

Therefore, innovation consists of solving both technical and market risks. The challenge with your R&D departments is that it focuses only on solving technical risks. While this may increase your number of patents, this does not guarantee the success of your innovations on the market. What could be worst than developing something that nobody wants? Sounds familiar?

To eliminate market risks, your company needs an innovation process that allows you to develop innovations which are feasible, viable and attractive. Thus, you can quickly understand that technical feasibility is only one part of the innovation equation, and that a successful innovation process has nothing to do with your R&D budget.

Beyond the question of how many dollars you could spend on R&D, you should ask yourself following questions:

  • How do we manage our innovation spending?
  • How are my processes to manage innovation?
  • How can we reduce market and technical risks in an efficient manner?

Knowing the answers to these questions is much more important for your ability to innovate than your R&D budget.

As Steve Jobs explained in 1998:

"Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it."

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